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How technology is changing outsourcing

Software that helps automate and standardise business processes offers companies alternatives to traditional outsourcing, a global market long dominated by providers in India and China, according to research by global management consultants A.T. Kearney.

Robotic process automation, or RPA, requires licensing a software robot that handles rules-based, repetitive tasks requiring no human judgement. Examples of such tasks, according to global professional services consultants at Accenture, are value-added tax reporting, cost accounting, and purchase orders in highly regulated financial services organisations such as banks, insurers, and pension funds.

RPA can reduce the cost of back-office processes by up to 50%, because the licence costs a fraction of an onshore or an offshore employee and eliminates employee training and management, the A.T. Kearney report tracking outsourcing activities worldwide suggested.

In addition to RPA, which uses customer-specific processes, companies also have business-process-as-a-service software available. BPaaS is cloud-based and uses a standardised interface and process that can be applied to multiple customers. Economies of scale makes BPaaS about 10% less costly than traditional outsourcing of business processes.

While some companies might look at the technology as an avenue toward greater operational savings, others might see it as an opportunity to free up finance staff for more strategic functions.

Both technologies “are fledgling,” said David Cieslak, CPA/CITP, CGMA, principal and co-founder of Arxis Technology, a mid-market enterprise resource planning reseller. But BPaaS, especially, is “starting to pick up steam.”

BPaaS makes business process outsourcing available to smaller and midsize companies, because the cost is usually based on usage rather than RPA’s licensing fee or the per-employee cost in traditional outsourcing. In 2014, the global BPaaS market billed $18 billion, about 11% of the $160 billion global business process outsource market, A.T. Kearney reported.

A.T. Kearney suggested that combining RPA’s automation with BPaaS’s standardisation has the potential to change the traditional outsourcing model. “The cloud is an opportunity to not just lift and shift, but also to reimagine how it is done,” Cieslak said.

Increased acceptance of the new technology, especially by small and midsize companies, will challenge providers of traditional outsourcing services, which rely on a large labour force in emerging economies, A.T. Kearney suggested.

To counter this challenge, traditional outsourcing hotspots will need a labour force equipped to perform higher-level tasks that machines cannot replace. India, the Philippines, Sri Lanka, Costa Rica, and South Africa are likely to meet the challenge, according to A.T. Kearney. Cities with cutting-edge innovation hubs, such as Seoul, Tel Aviv, Berlin, and San Francisco, also will be likely winners.

To determine whether RPA and BPaaS outsourcing alternatives are right for them, Cieslak suggested companies take these three basic steps:

Take an inventory of back-office processes.

Understand the financial impact of outsourcing.

Prioritise processes that should be outsourced and come up with a plan.

Top 10 outsourcing hotspots

A.T. Kearney’s Global Services Location Index ranks the countries that are most attractive to companies looking to outsource business processes in 2016. The ranking is based on financial attractiveness, people skills and availability, and business environment.

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